INHERITANCE TAX & RETIREMENT PLANNING
MEET GEOFFREY AND HEATHER
Geoffrey has recently retired after several years of service working in local Government. He wanted to understand his options relating to an old personal pension he has held since the 1990s.
Geoffrey retired at the age of 66, commenced his local government defined benefits pension and started drawing on his state pension. Heather is 53 and hasn’t worked for a few years due to her poor health. Heather has a deferred defined benefit pension via an ex-employer.
The couple own a home worth £140,000, with no mortgage. They have around £10,000 in cash deposits and own shares worth circa £40,000. Geoffrey has a personal pension he started in the late 1980’s which was valued at £105,000.
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WHAT DID GEOFFREY AND HEATHER NEED HELP WITH?
Geoffrey wanted to understand what his cost of living in retirement would be and how he could meet this with his pensions. Geoffrey was also concerned that Heather wouldn’t realise the full benefit of his pensions should he die prematurely.
Geoffrey understood that safeguards for Heather, in the form of a dependents pension, were built into his defined benefit pension, but he wanted to understand the death benefit implications of his personal pensions.
Geoffrey was keen to keep his pension arrangements flexible due to the age gap between the couple.
Along with this, Geoffrey wanted to top up his income to cover the cost of their desired lifestyle and add to his savings to cater for emergencies.
HOW DID WE HELP?
At Godiva Wealth Management, we completed a budget planner and established that Geoffrey and Heather needed an additional £4,000 for the first year to cover their desired lifestyle. We discussed their attitude to investment risk, their investment experience and their capacity for loss; all in order to ensure any recommendations were suitable.
We concluded that they should take the following actions:
• Transfer Geoffrey’s old personal pension to a flexible pension plan and crystalise the entire fund, enabling £26,250 as tax-free cash and electing an income of £4,000 per annum to meet their income shortfall.
• The remaining fund to be invested into a fully asset allocated investment portfolio, specifically tailored to Geoffrey’s attitude to risk.
THE OUTCOME
We secured enough income for Geoffrey and Heather to cover the cost of their desired lifestyle.
Geoffrey will annually decide how much income he needs for the year and will continue with this strategy for the foreseeable future.
The option to convert to a lifetime annuity at any time, should annuity rates improve, or should Geoffrey’s health deteriorate.
Geoffrey has nominated Heather as beneficiary under his new personal pension, thereby retaining control of his fund and ensuring that Anne can access the pension ‘pot’ for income or a lump sum in the event of his premature death.
